Making new laws is not the answer

Daryl Dixon, 20 March 2016, The Canberra Times

In response to the Murray financial system inquiry, the government wants to develop legislation to enshrine the objectives of the superannuation system. This is a noble aim and long overdue, but the Treasury discussion paper suffers from a blinkered and limited perception of the wealth creation and savings objectives of ordinary Australians.

Most Australians now struggle to achieve home ownership and build up sufficient assets to fund a comfortable retirement. This task is likely to become harder with likely low investment returns.

Focusing solely on the fairness, adequacy and sustainability of the superannuation system, as Treasury proposes, runs a grave risk of ignoring the fundamental defects in our retirement savings system.

Everyone can agree that the objective of super is to help fund retirement and it's not for unlimited wealth accumulation or bequests. Yet, compared with the tax and estate planning benefits of discretionary trusts and of over-investing in the family home, very few super funds are used for this purpose.

By concentrating wealth accumulation in the family home, taxpayers have unlimited access to tax-free capital gains and the ability to access the age pension with an actuarial value at today's low interest rates as high as $900,000 for a married couple.

Very few taxpayers can accumulate super balances greater than this relying solely on compulsory super.

Legislating the objectives of superannuation does nothing to clarify the costs and objectives of assistance provided to the family home, discretionary trusts and similar estate protection vehicles.

As the Institute of Actuaries has shown, the asset test exemption of the family home often facilitates tax-free bequests made possible by years of age pension payments. Singapore has proved that integrating compulsory super with the achievement of home ownership has helped both individuals and the accumulation of retirement assets.

Australia's compulsory super contributions, by contrast, frustrate the achievement of home ownership and discourage the voluntary super contributions essential for most people to fund retirement.

Compulsory super itself doesn't cover all of the workforce because of the exemption of the selfemployed, unemployed and others temporarily not working.

If the real Treasury objective is to reduce reliance on the age pension, focusing solely on super and its objectives won't achieve the result.

It's disappointing also that Treasury ignores one of its most valuable benefits, the provision of death and disability benefits to protect members and their families from these risks. This provision was given a high priority by the Cooper Review's design of approved MySuper schemes.

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Daryl Dixon

Executive Chairman

Daryl Dixon is one of Australia’s foremost investment experts and a well known writer and consultant. He has provided trusted advice to thousands of personal clients over more than 25 years and is an acknowledged expert in the areas of tax, superannuation (including public sector superannuation), social security and investments.

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